Question 2 (11 marks)

a) Discuss the circumstances that would require a business to change from traditional costing to ABC costing? (2 marks)

b) Takulah Co. Ltd has traditionally allocated its overhead based on machine hours but had collected this information to change to activity-based costing:

Required:

Estimated Activity Activity Center Product 1 Product 2 Estimated Cost Machine setups 15 45 $ 10,800 Assembly parts 3,000 3,000 144,600 Packaging pieces 500 400 55,350 Machine hour per unit 4 3 Production volume 750 1,500